Does MOC’s Prohibition on Item Sweepstakes Decrease the Profits for Game Companies in China?

(By You Yunting) Recently, the Ministry of Culture has issued the Notice of Ministry of Culture on Regulating Online Game Operation and Strengthening Interim and Ex Post Supervision (Referred to as “Notice”), which will be put into effect as of May, 2017. The Notice contains lots of specific policies, including the restrictive policy on providing virtual props and value-added services of an online game by sweepstakes (Referred to as “Item Sweepstakes”), which are the significant sources of profits for game companies. In this article, we’ll discuss whether this policy would affect the incomes of these game companies or not.

The Notice has two specific stipulations on Item Sweepstakes:

(1) It is forbidden to use direct or indirect transaction currency for Item Sweepstakes, or even such Item Sweepstakes is free, the companies shall disclose the rates of the Item Sweepstakes and item synthetic probability;

(2) The companies shall also offer the options for players to exchange or purchase such items and value-added services.

Why is the Item Sweepstakes forbidden? The Ministry of Culture has given us the explanations in its official interpretations of the Notice: “It is essential to ensure that the consumers should know what they are consuming and what the potential results are. We want to keep the interesting and stochastic parts of Item Sweepstakes, but at the same time, we need to eliminate any risk of illegal gambles and induced consumptions.” In my opinion, theoretically the Item Sweepstakes is kind of lottery issued by online game companies. Though these companies can make abundant profits from such gambles, the fairness of games might be harmed, causing consumers some irrational consumptions and disordered competition of this industry. Therefore, the prohibition on Item Sweepstakes will benefit players and the long-term development of this market, but will adversely affect capitals looking for short term interest.

However, we suspect whether the prohibition on Item Sweepstakes could be fully implemented. In the past few years, the Ministry of Culture has reiterated such prohibition for several times but Item Sweepstakes are still popular now. In 2009, the Ministry of Culture and Ministry of Commerce issued the Notice of the Ministry of Culture and the Ministry of Commerce on Strengthening the Administration of Online Game Virtual Currency, stipulating that the online game companies shall not conduct the Item Sweepstakes. Then, lots of popular games such as ChuangTianGuan, JieTianLao and KaiBaoXiang, which contain the Item Sweepstakes, suddenly became illegal. Later, the Notice of the Ministry of Culture on Improving and Strengthening the Administration of the Contents of Online Games as of November, 2009 and the Interim Measures for the Administration of Online Games as of August, 2010 both reiterated such prohibition, and the Ministry of Culture published several typical administrative cases enforced in 2012 and 2013.

The Ministry of Culture has implemented and received significant achievements and few Item Sweepstakes could be found in those popular games several years ago. Also, the game companies abroad took this prohibition seriously. Our team has provided legal services for some of these companies on how to revise the Item Sweepstakes in games pursuant to laws and regulations in China.

But now, the prohibition on Item Sweepstakes has failed its purpose within the domestic game market. Almost every game company, regardless of its business scale, takes the Item Sweepstakes as a main source of profits. And the supervision of the Ministry of Culture is now becoming nominal only. Why?

Firstly, it is possibly related to the development and business trend in the world’s game market. For example, the Hearthstone of Blizzard Entertainment and FIFA ONLINE of EA both include the features of raffling cards, which is theoretically same as Item Sweepstakes. Since these transnational companies run their business with Item Sweepstakes all over the world, the domestic companies then quickly follow such trend. Thus, the Item Sweepstakes has become the main-stream of business mode in game market.

Secondly, it is possibly connected to the rise of the concepts of cellphone games in stock market. Recently, the themes and subjects of cellphone games have been speculated heatedly in domestic stock market and the stock prices of such relevant companies have increased rapidly. So, to keep up correspondence with their stock prices, these game companies have to increase the profits from their daily operations. Then, the Item Sweepstakes is somehow the inevitable choice for most game companies.

Thirdly, the Ministry of Culture has weakened its supervision on this issue though we don’t know the reason why the Ministry of Culture chose deregulation. If it had been strictly implementing as before, the phenomenon of applying Item Sweepstakes would be much more less now.

Maybe the Ministry of Culture has realized that the Notice could bring about significant impacts on game industry, so the Notice will become effective in May, 2017, providing such games with Item Sweepstakes enough time for modifications. However, the game companies will always be in dilemma. If they modify such games in line with the Notice, the results will be decreases in both incomes and profits, since the business modes of games won’t gain such incomes and profits as lottery. What if such companies refuse to do any modification or just slightly modify their games? Then we believe that the Ministry of Culture will regulate the whole game industry pursuant to the Notice next May, and some games might be shut down.

At last, let’s get back to what we’ve said in the title, does MoC’s prohibition on item sweepstakes decrease the profits for game companies in China? The answer is yes. There will be a decrease in game industry for a short term. But as we know, some companies might temporarily modify such games in line with the Notice and add in such Item Sweepstakes back when the supervision becomes weaker. In other words, it’s a tough game to finally realize the prohibition on Item Sweepstakes.

Lawyer Contacts

You Yunting86-21-52134918

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